Why Gold is Good and Sovereign Debt is Bad
The universe has combined approximately $60 Trillion in debt given 2007, most of it emperor debt combined from necessity spending on amicable programs, wars, and most more. In that time a universe has mined maybe 30,000 tons of gold, or about 950 million ounces, value during Sep 2015 prices a small some-more than a $Trillion. It is easy to emanate debt – executive banks “print” currencies by BORROWING those currencies into existence. Debt increases, banking in dissemination increases, and until it crashes, life is good for a financial and domestic elite. But debt augmenting 60 times some-more fast than bullion indicates that debt is flourishing too fast and due for a reset.
It is a tangled web of debt, counter-party risk, obligations, and unintended consequences. From an interview with David Stockman:
Stockman goes on to paint a grave design and says, “What happens when a financial relapse comes is there is a good domain call. Everybody says ‘I wish my income behind and I’ll take your material if we don’t get it back. If we do take your collateral, we will sell it for whatever cost we can get and cut my losses.’ So, this is truly a residence of cards. The whole pyramid of debt and what we call hypothecation and rehypothecation of financial assets, that is a genuine bubble. That’s what people don’t concentration on enough. Sure, we can consider of holds that are a bubble, like Tesla and a stream cost of around $250, or a biotech index that is trade during hundreds of times gain is crazy. What’s unequivocally crazy is all of this debt that has been combined has been incited into material and borrowed opposite during a really high rate. The whole thing is really inconstant and rickety as we speak.. . . Much of this collateralized credit that has been combined is a certainty game. It is a daisy chain, and when a certainty breaks and they start to tell a chain, a volume of debt superb will shrink. That will emanate extensive damaged seat in a financial system.”
How do we strengthen yourself? Stockman says, “The place to go in my perspective is cash. Stay brief and glass given we are going into deflationary collapse. We are going into a good reset in a financial markets where arrogant item values are going to be noted down tremendously, bond prices and batch prices. As a outcome of, that there will be good event after a dislocation runs a march to buy things most cheaper than they are labelled today.”
Stockman thinks a whole complement unwinds someday before a 2016 Presidential competition is finished. (emphasis mine)
Critical Points Regarding Debt
- Margin calls come when markets crash, like now.
- Then we learn who has been “swimming naked” as Warren Buffet says.
- The daisy sequence of hypothecated and rehypothecated dodgy resources subsidy large loans breaks. Counter-party risk can overcome a financial system.
- The soaring edifice of debt is inconstant and survives essentially due to confidence, until certainty crashes as it did 7 years ago.
- A fall in certainty occurs along with a fall in prices for holds and stocks. Given that $Trillions in holds have been arrogant to a indicate of disastrous and nearby 0 yields, there is downside room for a estimable improvement in a 35 year bond longhorn market.
- When companies boyant 100 year holds a bond burble is impending a unavoidable and nauseous end.
- Stocks in a US have corrected or crashed approximately each 7 years. The SP 500 Index strike an all-time high in May of 2015, 7 years given a final vital high before to a crash. There is substantial downside ahead, maybe even if a FED cranks adult QE4 and QE5 to float a batch market.
- Question: If a Fed is a “buyer of final resort” who does a Fed sell to? The problem with a uncharted financial domain that a Fed has led a universe into is that upsetting and unintended consequences distortion ahead.
From Adrian Ash (Bullion Vault):
“But if a Fed is scared, investors and savers should be doubly so. Central bankers have led us low into a timberland where income does grow on trees, though not [economic] expansion or stability, and now they can’t find a approach out.”
“When night falls, there’s a really transparent risk of panic as investors comprehend that executive bankers, like a markets, are mislaid in a dark.”
Critical Points Regarding Gold
- No counter-party risk. There is no daisy sequence of hypothecated resources for genuine earthy gold. If we possess paper gold, consider again about counter-party risk. If we consider we possess bullion though your accessible community landowner has sold, loaned, or leased your bullion mixed times, there will be a problem when we wish to repel that bullion from a intricacy of that bank. Worse, a landowner might have stolen that bullion and left an IOU bullion in a vault. Of course, some people trust their bankers and are not endangered … fines, indictments, and prosecutions notwithstanding.
- Fort Knox contained 147 million ounces of bullion as of a final count … many decades ago. Since a final review was achieved 60 some years ago, there is risk that a Fort Knox Bullion Depository is indeed a Fort Knox Delusion. Apparently “trust though verify” is no longer viable, so act accordingly. Confidence in a tellurian financial complement will be jarred if a genuine essence of Fort Knox are reliable and are not as claimed, so don’t design an tangible review to occur.
- Physical bullion firmly stored outward a banking complement has nothing of a above mentioned problems. The same is loyal for silver.
I repeat: Gold is Good. Sovereign Debt is Bad.
Courtesy: Gary Christenson | The Deviant Investor
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